Joining a startup is far less risky than most people think

cdixon

9 years ago

Joining a startup is far less risky than most people seem to think. In fact, I don’t know if anyone has ever studied this systematically, but I would bet that people who join startups have greater job security than people who join large companies, and certainly have better risk-adjusted returns.

Here’s why:

– Big companies aren’t as stable as you think: I graduated business school 6 years ago. Very few people in my class created or joined startups, instead opting for “safe” companies like… Bear Stearns, Lehman Brothers, Ford, hedge funds that no longer exist, etc. Meanwhile, everyone I know who went the startup route has had job security and been successful – in some cases spectacularly so.

– Big companies aren’t loyal to employees: When there are cuts at big companies, they tend to just use a hacksaw and not consider how loyal you’ve been or how hard you worked. The people who survive are often the ones who happen to be in certain favored divisions or are good at playing politics.

On the flip side:

– Startups that have financing pay pretty well: If the startup you found or join is VC backed, you usually make market or near-market wages (in addition to the potential upside you get with equity). Even if things go south you will probably have broken even financially and learned valuable skills.

– Startups tend to be much more loyal to employees: For example, in the recent downturn I know of a number of startups where management took pay cuts (in some cases took their pay to zero) before laying anyone off. Experienced startup managers know how devastating layoffs can be to morale and to their own reputation and tend to avoid them at all costs. Moreover, even when there are layoffs they tend to be based on merit and loyalty.

– When you join a startup, you are also joining a network – You aren’t just joining a company – you are joining a network of employees and investors who – regardless of the fate of the startup you join – will inevitably go on to do interesting and successful ventures. If you impress them, they will bring you along. I know of many cases where startups failed but employees went on to flourish at the founders’ next startup or another company their VCs invested in.

In short, just because startups tend to fail more than big companies doesn’t mean joining a startup is riskier than joining a big company.